IPOs: Meituan-Dianping Listing Shows Signs of Life

Bottom line: Nio stock
is likely to give back most of its huge second day gains over the
next couple of weeks, while Meituan-Dianping could debut strongly
but will likely stagnate for its first two years as a public
company.

It seems
that perhaps I was a bit premature earlier this week when I wrote
the latest listing by electric vehicle (EV) maker Nio showed
investors had lost appetite for money-losing Chinese tech firms.
Nio's stock has actually done quite well in its first two trading
days, after a tepid pre-debut reception. And now we're getting word
that money-losing online-to-offline (O2O) services giant
Meituan-Dianping has also priced its own mega-offering in Hong Kong
at the top of its range.

Such a
sudden shift in sentiment seems hard to explain, and I do suspect
there may be at least a little manipulation going on behind the
scenes. Still, perhaps investors are feeling just a tad more upbeat
about Chinese tech these last few days in light of new signs that
the US-China trade war may soon ease with new talks scheduled to
try to hammer out a deal.

We'll
spend the second half of this post looking at Meituan-Dianping,
which is likely to make one of the biggest China Internet offerings
this year when it makes its trading debut in Hong Kong next week.
But first let's begin with a post-script for Nio, the
money-gobbling EV startup whose New York IPO sputtered to the gate
before its shares actually began trading on Wednesday.

I had
predicted a weak opening for Nio (previous post), in line with all
the earlier signs, which included a slashing of the original
fund-raising target by half. Indeed the stock started weakly, but
then ended up finishing up by a modest but respectable 5 percent
for the day. But what has knocked everyone's socks off has been the
stock's second-day performance, which saw the shares leap 70
percent on extremely high volume.

Nobody
seems to have an explanation for this huge upward correction. If
the volume was low I might say there was some manipulation going on
behind the scenes. One of my sources at an investment bank that
worked on the deal told me that the top 10 buyers of IPO shares
accounted for nearly 90 percent of all orders, which leads me to
believe that there was probably some trading going on back and
forth between those big buyers.

Still,
that big of a gain does seem to appear that at least someone thinks
the shares were more beaten up than they should be. The company
does, in fact, have a real product in the market and has notched
some sales, so that does show it could eventually earn some money.
But I still stand by my earlier forecast that this is a tough
market, and I have serious doubts about whether Nio will be one of
the many new players to ultimately survive.

Amazing Meituan

Next let's
move to Meituan-Dianping, whose IPO has been many years in the
making and appears to be generating some buzz. The company has
priced its IPO shares at HK$69 ($8.87), which is very close to the
top of its previously stated range of HK$62 to HK$70. (English
article) At that price the offering will raise about $4.2 billion,
which would probably qualify as the year's biggest Internet
listing.

I've also
written about this offering before, and came to the conclusion that
this probably looks like a good investment perhaps two or three
years down the road when competition starts to abate in some of its
main business areas. Two of Meituan-Dianping's main areas, O2O
takeout delivery and shared bikes, are currently losing massive
money. Its third and oldest area, group buying and restaurant
ratings, is presumably doing a bit better.

Investors
don't appear to be too scared off by the company's large losses,
which totaled a massive 18.9 billion yuan ($2.8 billion) last year.
Granted, a big portion of that is coming from the takeout dining
business, which accounted for nearly two-thirds of the company's
revenue. The company has also spent heavily to acquire leading
shared bike company Mobike, which also looks poised to be the lone
survivor in what has become a two-way race in a highly competitive
sector.

At the end
of the day, I still think there's some manipulation going on with
Nio's debut and now with Meituan-Diaping's IPO pricing, since both
companies count the very cash-rich Tencent (HKEx: 700) among their
investors. But these are very large offerings that probably can't
be manipulated all that long, and I do suspect that means that
Nio's stock will probably give back much of its second-day gains
over the next week or two. I'll continue to stick by my earlier
Meituan assessment, namely that the stock is unlikely to do very
much for the next couple of years but could be a good performer
after that.